Da Afghanistan Bank Financial Supervision Department

1. Afghanistan Financial Sector Development Forum“Making Finance Work for Afghanistan” Da Afghanistan Bank Financial Supervision Department Muhammad Qaseem Rahimi Deputy Director Financial Supervision Dept. Da Afghanistan Bank Tuesday March 31, 2009. Serena Hotel, Grand Ballroom. Kabul, Afghanistan

2. Da Afghanistan Bank Financial Supervision Department Strengthening Financial Institutions through Risk-based Regulation and Accelerated Capacity Building

3. Da Afghanistan Bank Financial Supervision Department Introduction to Financial Supervision Department of DAB The Financial Supervision Department was established in 1381. The total number of staff in the department was thirteen, while as of today the number is forty six (95% of the staff are university graduates). Thirty five are male, while eleven are female. Twenty more university graduate examiners will join FSD soon.

4. Da Afghanistan Bank Financial Supervision Department Introduction to FSD of DAB (Contd.) • Initially the three sections of FSD were: • Licensing Section, • General Supervision Section (on-site and off-site supervision) • Special Supervision Section

5. Da Afghanistan Bank Financial Supervision Department Introduction to FSD of DAB (Contd.) • Today, the sections of FSD are: • Licensing Section, • Special Supervision Section, • Onsite Supervision Section (five groups), • Off-site Supervision Section (including Accounting and Reporting), • AML/CFT Section • Section for Supervision of Islamic Banking

6. Da Afghanistan Bank Financial Supervision Department The Banking System of Afghanistan The Banking Law and DAB Law were passed by Presidential decree in 1382 which set the stage for the rapid renascence of the banking sector. Initially there were six nonfunctional state-owned commercial banks, while as of today the number commercial banks are 17 with 244 banking facilities across 27 provinces of Afghanistan. Full Service Branches 140 Limited Service Branches 70 Automated Teller Machines 33 Representative Offices 1 Initially MSPs and FXDs ware operating without having license and no respective regulations were drafted and approved, while today the number of licensed MSPs and FXDs are 111and 371 respectively and operating under regulatory framework.

7. Da Afghanistan Bank Financial Supervision Department The Banking System of Afghanistan (Contd.) • The total assets of the banking system as of January 08 were AFN 75.5 billion (USD 1.6 billion), while as of January 09 the total assets are AFN 125.8 billion (USD 2.4 billion) showing an increase of 66.6 %. • The total deposits of the banking system as of January 08 were AFN 59.3 billion (USD 1.2 billion), while as of January 09 total deposits are AFN 100.4 billion (USD 1.92 billion) showing an increase of 69.4%.

8. Da Afghanistan Bank Financial Supervision Department The Banking System of Afghanistan (Contd.) The net profit of the banking system as of January 08 was AFN 0.91 billion (USD 18.2 million), while as of January 09 the net profit of the banking system is AFN 1.3 billion (USD 24.6 million) showing an increase of 41%. All the banking institutions are well-capitalized and are within the limits set by DAB regulation.

9. Da Afghanistan Bank Financial Supervision Department Assets, Liabilities and Capital

10. Da Afghanistan Bank Financial Supervision Department Loans and Deposits

11. Da Afghanistan Bank Financial Supervision Department Profitability

12. Da Afghanistan Bank Financial Supervision Department Recent Steps Taken to Further Strengthen FSD • Provided in the country and out of country trainings to FSD examiners. • Increased the number of onsite examination teams from three to five. • Hired thirteen university graduates examiners for FSD. • Intensified on-site full scope and targeted examinations. • Separated of off-site supervision from on-site supervision for strengthening FSD. • Provided laptops to all FSD examiners.

13. Da Afghanistan Bank Financial Supervision Department Steps Taken in 1387 to Further Strengthen FSD (Contd.) • Completed the self-assessment of compliance with Basel Core Principles. • Conducted onsite examination of MSPs and FXDs in Kabul and Provinces for the first time. • Introduced new reporting formats and revising the existing reporting formats to commercial banks for strengthening off-site analysis.

14. Da Afghanistan Bank Financial Supervision Department Future Plans • Off-site Automation. • Develop “Certified Financial Sector Regulator” program to give staff career path. • Broaden scope of on-site examinations to include IT, business continuity, and disaster recovery. • Quicken enforcement action and follow up with tougher action if required. • Completing regulatory regime for DMFIs.

15. Da Afghanistan Bank Financial Supervision Department Moving to a Risk-Based Regulatory Framework • Currently, fourteen prudential regulations require the banks to operate according to best banking practices, including AML/CFT compliance. • Three additional regulations apply to MSPs, FXDs, and depository microfinance institutions (DMFIs). • Over time, DAB will insist on higher standards of risk management at the banks. • A gradual transition to the Basel II minimum capital requirements is an important step in this direction. • To calculate compliance under Basel II, banks will have to have more advanced risk management and data collection systems.

16. Da Afghanistan Bank Financial Supervision Department Risk Management Department

17. Da Afghanistan Bank Financial Supervision Department Structure of RMD • Risk Management Department was established in Feb’08. • Consist of 4 sections, which cover four different areas of risk. • Credit Risk • Market Risk • Corporate Governance Risk • Operational Risk

18. Da Afghanistan Bank Financial Supervision Department Risk Management Department • RMD assess the risks associated with each department of DAB. • Developing measures to control and mitigation the risk. • RMD also assists Financial Supervisory team of DAB to conduct the on-site examination of the banks and mainly focuses on risk management of the banks.

19. Da Afghanistan Bank Financial Supervision Department THANK YOU !